Inflation may have fallen from the record highs we’ve seen in recent years, but the cost-of-living crisis continues to put a squeeze on household finances. This, combined with an environment of higher mortgage rates than many have been used to, has a direct impact on how much customers can borrow. When it comes to overcoming the affordability challenge, however, specialist lenders are stepping up to help overcome the hurdles, particularly for the self-employed or those with multiple income sources.
An inclusive approach to assessing income
One way to help customers to maximise their affordability calculations is by ensuring all forms of income are considered. Often, mainstream lenders might limit the level of additional income sources or variable income that they accept, but many specialist lenders recognise the importance of a comprehensive assessment that includes various income streams. This could include non-court-ordered maintenance and regular benefits such as Working Family Tax Credit, Child Benefit, Universal Credit, and Disability Living Allowance. By acknowledging these income sources, a lender can provide a more accurate representation of our clients’ financial capabilities.
One way many customers have chosen to tackle higher costs is by taking on additional employment to increase their income. According to the recent Specialist Lending Study by Pepper Money, 11% of all respondents (5.77m people) say they have taken on additional work as a result of the cost-of-living crisis.
Again, not all lenders fully account for additional sources of income, but some specialist lenders take a more hands-on approach to understanding a customer’s income. This means they can give greater consideration to additional income sources. Customers can benefit from using a lender which has an affordability calculator which could include 100% of additional income, or multiple sources of employment, monthly bonuses or commission. Overtime is another useful consideration for mortgage customers particularly those, for example, who may work in the NHS and regularly work significant overtime. A specialist lender could accept up to 100% of overtime payments to help customers achieve the loan size they deserve.
The self-employed challenge
Securing a mortgage for self-employed customers often presents unique challenges. According to our last Specialist Lending Study, 80% of self-employed individuals feel that obtaining a mortgage is more difficult compared to their employed counterparts.
One of the biggest obstacles for self-employed applicants is proving consistent income. Unlike traditional employees with regular pay checks, self-employed individuals often experience fluctuating income levels, and many lenders use an average earnings figure from the last three years to assess affordability. This approach may not accurately reflect the financial growth of a successful business – the Specialist Lending Study found that 44% of self-employed respondents reported an increase in income over the past year, with 26% noting a 10% increase. Ignoring such income growth can result in applicants receiving lower loan amounts than they qualify for.
A hands-on underwriting approach allows lenders to consider the most recent year’s figures for self-employed customers, rather than relying on a three-year average. This method provides a more accurate reflection of their earning potential, ensuring they receive the loan amount they deserve.
Working with a specialist lender can significantly enhance mortgage affordability for your customers. By considering their latest income data and various income streams, more of your customers can have the opportunity to fulfil their ambitions.
Pepper Money is a specialist lender that can help customers to maximise their affordability, as well as those you have missed payments, CCJs and Defaults on their credit record.
